Microsoft needs a new CEO who probably doesn’t exist

Anyone who describes outgoing Microsoft CEO Steve Ballmer's tenure as a "failure" is wrong. An annualized growth rate of 16 percent in a large, established company, selling into mature markets, is nothing to scoff at. Revenue tripled under his leadership; profits doubled. That's some failure.

It's also not the case that Ballmer was simply riding high on the Windows and Office monopolies he inherited. They played a part, certainly, but they're not the whole story. During Ballmer's time as CEO, Microsoft Dynamics (its suite of CRM and ERP software) went from non-existent to a billion-dollar-a-year business. So too did SharePoint. So did Xbox. So did the System Center suite. So did Lync (formerly Office Communicator). So did Office 365. So did the Windows Azure cloud platform.

Concurrent with this, established products such as Windows Server, Exchange Server, and SQL Server continued to show strong growth. This growth includes the introduction of new features such as Hyper-V that have enabled Microsoft to go toe-to-toe with market leader VMware.

During Ballmer's time as Microsoft's CEO, the company grew. It diversified. It expanded into new markets, and it did so successfully. Ballmer enthusiastically promoted new directions like cloud computing, investing money to expand new businesses and giving the technical people the freedom and flexibility to implement the right solutions.

Ballmer worked to actively expand Microsoft's reach, to strengthen its position and broaden its revenue base.

It hasn't all been plain sailing, of course. Xbox has had a rocky road. The first model was cripplingly expensive to make, and it sold at a loss, as Microsoft worked to establish a beachhead in the console market. The second model suffered the Red Ring of Death reliability problem. The messaging and PR surrounding the imminent Xbox One has been nothing short of incompetent.

Online, Microsoft still has many challenges ahead. Bing has become a credible search engine, but Online Services Division still loses money (though it's heading in the right direction). The $6 billion purchase of advertising and marketing firm aQuantive in 2007 turned into a $6 billion write-off in 2012.

Even in enterprise there are anomalies. The rise of BlackBerry (or RIM, as it then was) is remarkable. With Exchange, Microsoft had a strong position in corporate mail and related technologies. With the variously named iterations of Windows Mobile and Pocket PC, Microsoft had a mobile, smartphone operating system. The components were all there. And yet it wasn't Microsoft who provided a way for busy executives to have reliable, instant access to their Exchange mail wherever they went: it was BlackBerry.

This was an enterprise market through and through, one concerned with remote management and security, one where Microsoft strengths such as support for Office documents could have been brought to bear. It was a market Microsoft should have completely owned. But it didn't.

The rise of the consumer smartphone

And of course, there's the whole rise of the iPhone thing.

To an extent, it's not entirely surprising that Ballmer and Microsoft failed to immediately understand the importance of the "consumer smartphone" as a broad concept. Xbox excepted, Microsoft isn't really a consumer company. It produces products that consumers do use, but by and large, those consumers have no direct relationship with Redmond. They buy their PCs with operating systems and Office preinstalled, and that's that. Microsoft talks to, and hears from, its enterprise customers directly, which is why it should have recognized the importance of the BlackBerry much sooner than it did. On the consumer side, this kind of disconnect just isn't as surprising.

The company didn't even suffer from a lack of vision per se. Microsoft wasn't late to touch; it was early. It was often resistive touch, and it worked better with a stylus, but the company had been shipping touch products for a long time. Microsoft wasn't late to smartphones; it was early. The devices were corporate-oriented, again using resistive touch screens, with a focus on Office and e-mail rather than apps and the Web, but the company was shipping smartphone platforms for a long time. Microsoft wasn't late to tablets, either. Same story.

But consistently, under Ballmer's watch, the company failed to adapt and respond, especially to changes driven by the consumer space. The use of finger-oriented, capacitive touch transformed the way both smartphone and tablet operating systems were designed. It changed the positioning of the smartphone as a consumer object that prioritized entertainment, the Web, and reliability over customization, Office, and line-of-business apps. It made the tablet a consumption-oriented casual device rather than a new way of using Office.

Microsoft had the right vision in broad strokes and was early to market in each of these categories. It failed to swiftly adapt that vision, to rework parts that did not work, to adopt new technology, and to produce the products that consumers wanted. The changes have come, but years after they should have.

In turn, that lack of adaptation has hurt two of Microsoft's core businesses: desktop Windows and Office. Consumers aren't replacing home PCs with new PCs. They're keeping their old PCs and buying iPads and Android tablets instead.

This in turn is encroaching on the enterprise space. The corporate world still places a greater importance on software such as Office, so Microsoft isn't facing any imminent collapse in this sphere, but increasingly companies are looking at these non-Windows devices to see what roles they can fill, and long term, that's a threat.

Turning high-level vision into class-leading products

Ballmer has a mathematics degree from Harvard, and his Microsoft career was largely spent in sales and management positions. He didn't position himself as a tech visionary, and as befits a man with a sales background, he believed in the company's products to a fault.

If Microsoft were a company like IBM, his time as CEO would be nothing short of a triumph. But it isn't a company like IBM. As Ballmer recognized in this interview with Mary Jo Foley, the consumer space and enterprise space are connected and become more so. Microsoft needs to be strong in the consumer space to remain strong in the enterprise.

If Ballmer was not to be this visionary, ready and able to reshape Microsoft's broader vision and ambitions and turn it into compelling, class-defining products the way Apple did, then he needed to appoint someone to this role and entrust them with the latitude and influence to drive Microsoft's consumer-facing products accordingly.

The reorganization announced earlier this year is a step in the right direction, as it should result in a company with more common interests and fewer turf wars. If the company follows through on, and commits to, the reorg, it should have the infrastructure to produce better products, more quickly. But it still needs leadership to set the direction.

Steve Ballmer's replacement needs to bridge both the consumer and the corporate worlds. That person needs to have the influence and persuasiveness to redirect and focus the company's efforts when necessary, as Bill Gates did in the 1990s amid the rise of the World Wide Web and the Internet. He or she also needs to have the vision to devise compelling, market-defining products that resonate with consumers, as Steve Jobs did at Apple, but without Jobs' hostility to the enterprise. Rather than Ballmer's overwhelming confidence in the company's products, Ballmer's replacement needs the same critical eye that Bill Gates demonstrated. I think that person would be well advised to continue down the Devices and Services path that Ballmer has promoted.

Where Microsoft might find such a person is anybody's guess. The combination of features—someone with a credible vision of the future and the ability to get there, someone who is equally attuned to the demands of the corporate world, someone with the experience of running large technology companies (preferably with software expertise)—is rare, and people with the proven competence in these areas aren't abundant.

But perhaps that doesn't matter. Microsoft is a diverse company, and it's unlikely to ever find someone who would have all the right properties. Consumer visionaries rarely care about the enterprise market, after all.

A better route might be to look for another Steve Ballmer, but without that salesman's overconfidence. This CEO would be someone willing to appoint and listen to a consumer-oriented, product-focused visionary who could be empowered to guide the company's consumer-facing products. This could be every bit as effective as a "classic" visionary CEO in the Bill Gates or Steve Jobs mold, while being somewhat easier to find.

A better route might be to look for another Steve Ballmer, but without that salesman's overconfidence. This CEO would be someone willing to appoint and listen to a consumer-oriented, product-focused visionary who could be empowered to guide the company's consumer-facing products. This could be every bit as effective as a "classic" visionary CEO in the Bill Gates or Steve Jobs mould, while being somewhat easier to find.

*Puts resume in the post*

Really it looks like 2013 is the year for "looking for leadership". Apple lost theirs and soon Microsoft. Other tech companies look like they need to look too.

I don't buy that Ballmer built anything. He let Office and Windows develop - with the proviso that Windows fell behind its competitors and he had Sinofsky to keep Office chugging along - but little else was new. Yes, Xbox, but I don't think it's in the black yet, and it's mostly an also-ran outside the US. His biggest flaw was that the Xbox made him think he could take on Apple on its own turf. Noone does that, and least of all uncle Fester. The Zune, Kin and Surface are all expensive examples of that.

I think MS needs a Dynamic Duo. A visionary that can figure where the puck is going and build something there (or buy someone small who is building something there) and someone who can whip MS into shape and make them all work towards the same goal. Not quite a Jobs-Cook combo (as you said, the CEO needs some smoothness towards enterprise customers and the operations guy needs a different skill set than keeping the logistics flowing), but it's a good example of having a visionary and an operations guy to back him up.

You sound like some MS apologist trying really hard to make excuses for some of MS' woeful failures

If the revenue growth and profitability that Ballmer created over is tenure is considered failure, sign me up.

Note the use of "some" in my sentence. MS has been quite successful at a number of things. e.g. XBOX, Win7 and a failure at others with the biggest being the consumer smartphone,

I don't see where the article made excuses.It said "On the one hand, various areas grew and were successful, but on the other hand, there were main failures due to MS trying, but trying at the wrong time and failing to adapt their attempts and then got beaten handily in the market".

It's basically statements of fact.Not sure how describing things that happened is being an apologist.

Seems like a lot of people here are focused on consumer products and the hate of Windows 8, and are ignoring the fact that Microsoft is a business and Ballmer was CEO of said business, and did business things that grew the company consistently over his tenure, and has given them weak footholds in areas they need to try and crack properly.

The article is written about Ballmer the CEO, not Ballmer the consumer products man. So read it as such.

On paper/financially, his term was not a failure. But when you factor in the opportunity cost...it was a disaster of epic proportions.

With the cash cows of Windows and Office, MS remains a juggernaut that can't really be derailed from its path of continued financial success.

But in the field of innovation is where the company has failed remarkably. The Windows hegemony will keep the company alive and well for a long time, but eventually the lost the opportunities of the last decade will have an impact.

Good to see Microsoft hate is an alive and well hobby. Record profits are a failure I'd take any day, not that anyone hating on this actually read a word.

But no, there's no CEO that's going to be what Microsoft needs most of all. People like that form their own companies. Steve Jobs, Bill Gates, Larry Page, even people like Gabe Newell and Zuckerberg; this type of person that has some grand vision and the ambition and drive to follow through on it almost always go off and form their own company. Why ride the coat tails of someone else when you can be your own boss and do your own thing?

Microsoft was lucky to have someone as generally competent as Ballmer around after Gates retired. The best it can hope for someone just as competent but in different, more modern areas. J. Allard had, if not the exact right ideas, then the right type of ideas but is gone. And I don't know of anyone that could match up.

You sound like some MS apologist trying really hard to make excuses for some of MS' woeful failures

If the revenue growth and profitability that Ballmer created over is tenure is considered failure, sign me up.

Wall Street sees it as a failure (which the article overlooks), as the stock price has been flat over the length of his tenure. MSFT jumped more than 7% today on this news.

The thing is, Microsoft was *totally* positioned to own - or at least participate in - the huge markets currently dominated by Google, Facebook, or Apple, to name a few. What the market sees over the past decade are explosively growing segments in tech, and Microsoft perpetually missing the boat, and as a result, declining in relevance.

A better route might be to look for another Steve Ballmer, but without that salesman's overconfidence. This CEO would be someone willing to appoint and listen to a consumer-oriented, product-focused visionary who could be empowered to guide the company's consumer-facing products. This could be every bit as effective as a "classic" visionary CEO in the Bill Gates or Steve Jobs mould, while being somewhat easier to find.

I'd go so far as to say they should be looking explicitly for two co-CEOs, even if only one has the actual title. For an example one need only look at Disney's two golden ages, the first while effectively co-helmed by Walt and Roy Disney, and the second by Michael Eisner and Frank Wells.

Microsoft had everything they could possibly want, all the financing they could use, and utter dominance in most if not all of the electronics software world. They've been out-thought and out maneuvered in every new market they've tried to enter. Even their games division is just 'not bleeding' anymore, and it's the most successful of their new forays.

This is really a lot like someone being given the ability to pull baseball players out of time, at the peak of their career. Babe Ruth, Willie Mays, Barry Bonds, Ted Williams, Hank Aaron, Ty Cobb, Roger Clemens, Stan Musial, Mickey Mantel, Honus Wagner, Lou Gehrig, and the next 20 top baseball players after them. Then put them into the National League as a team, and at the end of the season, proclaim how successful Coach Ballmer was for making it to the playoffs, and that just because he didn't win the pennant doesn't make this a bad season, as it's very hard to win the pennant.

I'm going to miss Balmer, particularly his impersonations of a coked-up lunatic when he was shouting about "developers".

It's going to be very tough to find someone to get a handle on a business as big as Microsoft. They need a tough guy who can do things like force the Office team to properly support touch and contribute to the success of Win8 but that person still needs to be open to ideas enough to not miss opportunities like the explosive rise of the consumer smartphone.

On paper/financially, his term was not a failure. But when you factor in the opportunity cost...it was a disaster of epic proportions.

This.

Yes, financially the company has done well under him. But the marketplace show some huge looming issues that Microsoft is going to struggle to deal with (ie going from #2 in mobile to being grouped into the "other" category).

A good CEO needs to be judged on more than this quarter's profits - he needs to be judged on the groundwork for the long-term future. History will judge, but that groundwork doesn't look good.

A better route might be to look for another Steve Ballmer, but without that salesman's overconfidence. This CEO would be someone willing to appoint and listen to a consumer-oriented, product-focused visionary who could be empowered to guide the company's consumer-facing products. This could be every bit as effective as a "classic" visionary CEO in the Bill Gates or Steve Jobs mould, while being somewhat easier to find.

*Puts resume in the post*

Really it looks like 2013 is the year for "looking for leadership". Apple lost theirs and soon Microsoft. Other tech companies look like they need to look too.

You sound like some MS apologist trying really hard to make excuses for some of MS' woeful failures

Actually I agree with you, mainly because he hasn't set up Microsoft for a great future, and that's why he's getting the boot. Yes, he's done some things that have realised good revenue and profit in the past decade or so, but Microsoft's future isn't very bright, in fact some might consider it quite dismal. Where is their future growth coming from? That's the reason he's been, and let's be honest and clear here, fired.

How many product failures can one person achieve at a company and still remain at the helm? Well, thank goodness Microsoft was cash and annuity rich that he had the opportunity to create so many massive failures.

I really am not seeing MS doing well even in the traditional enterprise. Between Win8, Office licensing and more than a few dev shops unhappy with newer APIs and VS editions. A lot of the enterprise is still best in class but for how long?

I think the worst is yet to come for MS. I can't imagine anybody competent enough to be their CEO would want to be at this particular point.

Turning MS into a products and services company? I am just an ignoramus with an opinion, but I disagree with the article that would be the right way to go for them. If anything, I see them becoming more like IBM.

Microsoft has never been a product company. With the reorganization and Ballmer's own words in this morning's email, I foresee disaster if that's where they want to go. Lack of vision is bad. Pursuing the wrong vision is probably even worse.

But I am just an armchair critic on an internet forum who thought the iTunes store was a daft idea, so...

A better route might be to look for another Steve Ballmer, but without that salesman's overconfidence. This CEO would be someone willing to appoint and listen to a consumer-oriented, product-focused visionary who could be empowered to guide the company's consumer-facing products. This could be every bit as effective as a "classic" visionary CEO in the Bill Gates or Steve Jobs mould, while being somewhat easier to find.

*Puts resume in the post*

Really it looks like 2013 is the year for "looking for leadership". Apple lost theirs and soon Microsoft. Other tech companies look like they need to look too.

Your lede is wrong. It's wrong because Ballmer simply rode a train that was already going full-blast with what amounts to a monopoly. The company that owned Windows and Office pretty much had a license to print money. Microsoft would have been successful with almost anybody as CEO, because most people were going to buy Windows and Office no matter what the company did.

But instead of making sure that the company could dominate the future, Ballmer was obsessed with protecting what he already had — the semi-monopoly franchises that continue to bring in money. As a result, the company has lost its chance to continue being the 800-lb. gorilla of the IT industry. Microsoft will continue to be profitable for quite some time, because there will be markets for Windows and Office for quite some time. But when it comes to the playing fields upon which future IT wars will be decided, Microsoft is just another player among several giant semi-equals, each of which has a shot at domination.

So while Microsoft made a lot of money on Ballmer's watch, I see no evidence that he added value. He was handed the keys to the semi-monopoly of the IT industry and he's managed to blow all the chances that the market leader rightfully should have taken advantage of. He was a buffoon who has laid the foundation for the serious decline of the company — simply because he did nothing with the resources and the giant lead he was given.

You sound like some MS apologist trying really hard to make excuses for some of MS' woeful failures

If the revenue growth and profitability that Ballmer created over is tenure is considered failure, sign me up.

Wall Street sees it as a failure (which the article overlooks), as the stock price has been flat over the length of his tenure. MSFT jumped more than 7% today on this news.

The thing is, Microsoft was *totally* positioned to own - or at least participate in - the huge markets currently dominated by Google, Facebook, or Apple, to name a few. What the market sees over the past decade are explosively growing segments in tech, and Microsoft perpetually missing the boat, and as a result, declining in relevance.

Microsoft had a P/E of 31 10 years ago. That's rather high.It's also a dividend stock. The share price might not have moved much, but they have been paying out dividends, meaning around a 33% return through dividends over the last 10 years.

So, Microsoft's share price hasn't moved much in 10 years, but its P/E ratio has become a lot more normal, because it was overvalued 10 years ago. Plus it pays a dividend.The fact that the share price hasn't tanked is a good thing.

If Microsoft had a 13 P/E 10 years ago, the share price would be up around 150%, and you would also have earned a 33% return from dividends. Is Ballmer to blame for MS having a current P/E of 13 and an historic 31? Or is "the market"?